Congress Proposes Big Cuts in Pell Grants

Featured Author:

Mark Kantrowitz

As a nationally recognized financial aid expert, Mark has been called to testify before Congress about student aid on several occasions.

He has served as a guest columnist for the New York Times and the Huffington Post and has been interviewed regularly by major news outlets, including the Wall Street Journal, USA Today, MSN, CNN, NBC, ABC, CBS, CNBC and more.

Mark is the author of five books, including three about student aid. His most recent book, Secrets to Winning a Scholarship, helps families find and win scholarships. He is also on the editorial board of the Council on Law in Higher Education and the editorial board of the Journal of Student Financial Aid, a member of the board of directors of the National Scholarship Providers Association and a member of the board of trustees of the Center for Excellence in Education.

Mark is ABD on a PhD in computer science from Carnegie Mellon University (CMU) and holds Bachelor of Science degrees in mathematics and philosophy from MIT and a Master of Science degree in computer science from CMU.

The Republican leadership of the US House of Representatives released
a proposal to cut the maximum Pell Grant to $4,015 late on Friday,
February 11, 2011. This proposal is part of a larger package of budget
cuts that seek to cut spending by $100 billion for the remainder of
the current fiscal year. Congress has not yet passed the fiscal year
2011 budget. The federal government is currently operating under a
continuing resolution that expires in early March. (In the meantime
President Obama will unveil his proposals for the fiscal year 2012
budget on Monday morning, February 14, 2011.)

The Pell Grant is awarded according to an award year that runs from
July 1 to June 30, while the federal government is funded according to
a fiscal year that runs from October 1 to September 30. Thus each Pell
Grant spans part of two federal fiscal years. The proposed cuts to the
fiscal year 2011 budget would affect the Pell Grant program during the
2011-12 academic year.

The maximum Pell Grant is based on the sum of discretionary and
mandatory funding. Discretionary funding is subject to the annual
budget appropriations process, while mandatory funding is already
appropriated by permanent legislation. Thus discretionary funding is
subject to an annual review and can be cut much more easily than
mandatory funding. Entitlement programs, like Social Security, are
based entirely on mandatory funding.

The current maximum Pell Grant of $5,550 is the sum of a $4,860
maximum Pell Grant under discretionary funding provided by the federal
budget and $690 from mandatory funding provided by the College Cost
Reduction and Access Act of 2007.

The proposal to cut the maximum Pell Grant appears to affect only the
discretionary funding. If so, the $4,015 discretionary maximum would
be added to the $690 in mandatory funding to yield an overall maximum
Pell Grant of $4,705. This is less than the overall maximum Pell Grant
of $4,731 during the 2008-09 award year. (Despite the proposal’s lower
overall maximum Pell Grant, there are some technical differences that
yield roughly the same total cost. For example, the eligibility cutoff
for the Pell Grant is currently based on the overall maximum Pell
Grant. Previously it was based on just the maximum Pell Grant under
discretionary funding. The minimum Pell Grant is also set at 10% of
the maximum Pell Grant, higher than the previous $400 minimum grant.)
This proposal would cut the maximum Pell Grant by $845 (15.2%)
from the current maximum Pell Grant of $5,550.

While the goal is to roll back government spending to 2008 levels, the
legislative proposal hurts Pell Grant funding more severely than other
budget items. The recent increases in the maximum Pell Grant
compensated for four years of no or negligible increases
during the Bush administration. The maximum Pell Grant was essentially
flat from 2002-03 to 2006-07. The proposed cut in the maximum Pell
Grant will be the largest cut in student aid funding in the history of
the Pell Grant program.

This proposal will cause more than a million students to lose
eligibility for the Pell Grant. Every $100 change in the maximum Pell
Grant currently corresponds to about 200,000 recipients. The proposed
cut in the maximum Pell Grant would mean that 1.7 million low income
students would no longer qualify for the Pell Grant, almost a fifth of
current recipients. The remaining recipients would have their Pell
Grants cut severely.

As the Advisory Committee on Student Financial Assistance (ACSFA)
demonstrated in its June 2010 report,
The Rising Price of Inequality,
inadequate need-based grant funding causes declines in Bachelor’s
degree attainment. The cut in Pell Grant funding will reduce the
number of low income students receiving Bachelor’s degrees each year
by about 61,000. Coupled with the likelihood of double-digit tuition
inflation at many public colleges, college will become considerably
less affordable. (Public college tuition tends to increase at
double-digit rates at the end of a recession and for a few years
afterward due to shortfalls in state income tax revenue. The stimulus
bill delayed this by two years. The end of the stimulus bill funding
and the reductions in state support of higher education will cause
many public colleges to increase tuition at above-average rates this
year.) The combination of an increase in college costs and a decrease
in need-based grants will increase student out-of-pocket costs
considerably, causing hundreds of thousands of low income students to
drop out of college.

The only previous decreases in the maximum Pell Grant were as follows:

2008-09. An across-the-board budget cut reduced the maximum Pell
Grant by $69 from $4,800 to $4,731. The $4,731 maximum Pell Grant
still represented an increase when compared with the maximum Pell
Grant of $4,310 in 2007-08.

1993-94. The maximum Pell Grant decreased by $100 from $2,400 in 1992-93 to $2,300 in 1993-94.

1981-82. The maximum Pell Grant decreased by $80 from $1,750 in 1980-81 to $1,670 in 1981-82.

1980-81. The maximum Pell Grant decreased by $50 from $1,800 in 1979-80 to $1,750 in 1980-81.

When Congress passed the Health Care and Education Reconciliation Act
in early 2010, they promised to use the savings from the switch to
100% Direct Lending to increase the maximum Pell Grant and to provide
more stable funding for the Pell Grant program. A White House fact
sheet about the Pell Grant improvements said that the grants would
increase in future years to “help keep pace with both inflation and
the rising costs of college” and that the legislation would put “the
program on more secure footing for years to come.” However, the
promised increases in the maximum Pell Grant were anemic at best,
with no change in the maximum Pell Grant for five of the next ten
years and small inflationary adjustments for the other five
years. Congress could have done better, but $20 billion of the savings
from eliminating the federally-guaranteed student loan program was
used for deficit reduction instead of increasing student aid
funding. Now it appears that Congress will once again divert money
from student aid to deficit reduction, failing to fulfill last year’s
promise to American college students and their families.

This proposal is unwise. If there were a need to cut student aid
funding, it would be better to eliminate the subsidized interest on
the subsidized Stafford loan than to cut the Pell Grant. Cutting the
subsidized interest would have a much less severe impact on access,
persistence and completion than cutting the Pell Grant. The Pell Grant
program is much more carefully targeted at financial need than the
subsidized Stafford loan program, with 97% of Pell Grant recipients
earning less than $50,000 a year compared with 69% of
subsidized Stafford loan recipients.

This proposal is also short-sighted. Instead of cutting Pell Grant
funding, Congress should be doubling it. We are no longer in an arms
race, but a brains race. Every year we are falling further and further
behind as other countries overtake us in the percentage of the
population with college degrees, especially in science, technology,
engineering and mathematics. An investment in higher education pays
better returns than any other investment. For example, the increased
federal income tax revenue from increasing the number of college
graduates would pay for the cost of doubling the maximum Pell Grant in
about a decade. Federal student aid is not just an investment in the
future of the individual student, but an investment in the future of
the nation.